Monday, October 10, 2016

So Much for Diamler . . .

Bristol-Myers Squibb. Co. v. Superior Court, No. S221038 (Cal. Aug. 29, 2016)

Certain kinds of litigation gravitate towards California, even when neither the plaintiff nor the defendant is resident or headquartered here. (See, e.g., asbestos cases.) The conventional wisdom is that that state of affairs was likely to subside after the US Supreme Court did away with the broad “systematic and continuous” test for general personal jurisdiction in Daimler AG v. Bauman, 134 S. Ct. 746 (2014), which held that general jurisdiction is appropriate only where a company is “at home.” 

Daimler, however, did not purport to affect specific personal jurisdiction—i.e. jurisdiction based on a factual nexus between the defendants contacts in the forum and the facts underpinning the claim itself. As we’ve discussed before, state and federal courts are all over the map on how strict that nexus must be. But California has adopted the “substantial connection test,” which is pretty much the most liberal test of all the options. After this case, the “pretty much” qualifier is probably unnecessary.

The case is a series of mass products liability actions about a drug. Of the almost 700 plaintiffs, less than 100 are from California. Defendant contested personal jurisdiction on the grounds that it was not headquartered or incorporated in California, most of its operations did not occur here, and only a small fraction of its overall revenues were made from sales of the drug at issue in California. On the other hand, the company did have some presence here—some research facilities, sales representatives, and a lobbying group in Sacramento. And regardless of proportion, it sold a lot of its drug here—almost $1 billion over six years.

After the trial court denied a motion to quash for lack of jurisdiction, the Court of Appeal denied the company’s writ, finding that these facts were enough to satisfy the substantial connection test. The Supreme Court granted review.

The Court first reviews the state of the general jurisdiction law and finds that, under Daimler, general jurisdiction can’t be established. Notwithstanding it substantial activities in California, Defendant is not “at home” here. Everyone agrees on this point.

But moving on to specific jurisdiction, the Court spits 4-3, along somewhat untypical lines. Chief Justice Cantil-Sakauye, joined by Justices Liu, Cuellar, and Kruger, find that specific jurisdiction has been met. Justice Werdegar dissents, joined by Justices Chin and Corrigan.

The basics are clear and uncontroversial. Code of Civil Procedure § 410.10 permits California state courts to exercise jurisdiction to the full extent permitted by federal due process. The U.S. Supremes say that, for specific jurisdiction, a three-part test applies: (1) Plaintiff must show the defendant’s minimum contacts, in the form of a purposeful availment. (2) Plaintiff must also show some nexus between the claim and the defendants contacts. And if those are met, (3) defendant can still beat jurisdiction by showing the general unreasonableness or unfairness of exercising jurisdiction based on a so-called gestalt test.

The big issue here is the second element. As noted, California applies a “substantial connection” test for that element. In Vons Cos. v. Seabest Foods, Inc., 14 Cal. 4th 434 (1996), the Cal. Supremes adopted the substantial connection test. Vons explains that—unlike the “but for” or “proximate cause” rules applied in many other jurisdictions—the claim need not arise directly from in-forum contacts to satisfy the second element. So long as there is some meaningful logical relationship between the contacts and the claim, the test is satisfied. Vons—decided almost twenty years before Daimler—also suggests a “sliding scale” in that a really strong showing on the first (contacts) element merits leeway with the second (connectedness) element. Taken to its logical endpoint, however, this sliding scale approach that permits crediting contacts over connectedness to the point that will ultimately result in a kind of junior-varsity general jurisdiction, which is the substance of the disagreement here.

The majority doesn’t think this case goes that far. It reasons that it was sufficient that the drug was extensively marketed, distributed, and sold, in California, that the California-resident plaintiffs were injured here, and that the out-of-state plaintiffs’ claims were “part of a common nationwide course of distribution.” That, according to the Court, is sufficient to meet the substantial relationship test. The court rejects the argument that, when a “nationwide” course of conduct is alleged, non-resident plaintiffs need to specifically show some substantive relationship between the forum and their particular claims. It notes that the U.S. Supreme Court has consistently rejected the idea that a plaintiff must be resident of the forum state to obtain personal jurisdiction.

Moreover, the Court denies that its rule subverts Daimler. It notes that it is not holding that Defendant can be haled into a California court on any matter, just in this particular matter where its conduct had a substantial relationship to California. The Court goes on to find that the third element—overall fairness and substantial justice—is also met, particularly given that an in-state defendant was also joined.

Justice Werdergar’s dissent is about as strongly worded as any I’ve seen on a procedure issue in quite a while. Focusing on the out-of-state-Plaintiffs, she notes that the drug was not developed here, it was not manufactured here, these plaintiffs were not prescribed it here, they did not buy it here, they did not take it here, and they were not hurt here. Further, the drug was not labeled here, packaged here, and no regulatory approvals had been sought from any defendant located here.

According to Justice Werdegar, for out-of-state plaintiffs, a mere similarity to the claims of in-state plaintiffs is just not enough. Were that the rule, Daimler’s limits on general jurisdiction would be rendered meaningless, so long as at least one in-state plaintiff could be joined. The dissent notes that, although the U.S. Supreme Court’s discussions of the relatedness element are sparse, each case where specific jurisdiction was affirmed featured a “direct link between forum activities and the litigation.”

The dissent acknowledges that Vons set out a relatively liberal standard, including some tradeoffs between the contacts and relatedness elements of the test. But the similarity between the claims of the out-of-state plaintiffs and those of plaintiffs resident here are nonetheless not enough to meet that test. In particular, the California promotion and sales efforts addressed in the majority have no meaningful relationship to the claims of plaintiffs who were marketed and sold the drug in other states. None of the drug company’s in-state activities have any relevance to the out-of-state Plaintiffs’ claims.

The dissent suggests that the majority was improperly motivated by making California an available forum for litigating mass torts in a single forum. Even if that interest is a legit concern, it isn’t met here. In addition to a federal multidistrict litigation, both class and mass actions have been filed in other state and federal courts. Given that “[n]o mechanism exists for centralizing nationwide litigation in a state court” this rationale cannot prevail. No matter how well equipped the superior court is in this case, it “cannot adjudicate the entire dispute” between the victims and the drug company.

Finally, Justice Werdegar specifically calls out the Court for essentially reading the second element out of the specific jurisdiction test. The second element is addressed to the concept of reciprocity—“the idea that the litigation to which a defendant is exposed in a particular forum should bear some relationship to the benefits the company has sought by doing business in the state.” It serves an important federalism concern by preventing state overreach and interference in matters that are more appropriately within the sovereign authority of other states. None of these interests is respected by finding relatedness based on the mere superficial similarity between the claims of California plaintiffs and those of plaintiffs not resident here.

Affirmed.

Cert petitions are currently due on November 27, 2016. IMHO, this is a pretty cert-worthy decision. The majority opinion has a flavor of rough-justice superficially that the U.S. Supreme Court has been all over in recent years when it comes to mass and class actions. There is a well-developed multi-way split in authority that has been festering for almost two decades. The Court’s own explanation of the issue has been sparse and inconsistent (thus the split). And the decision itself arguably undermines one of the Court’s recent rulings (a pro-defendant Justice Ginsburg ruling no less!). Under normal circumstances, I’d wager a pretty good chance of a grant. But with the currently hobbled eight-Justice Court and the uncertain state of the Garland appointment, who knows if there is any appetite for this kind of thing. 

*Update: Cert Granted on January 19, 2017. So maybe sometimes I know what Im talking about.

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